In recent weeks, I have warned of a Q1 correction with a strong possibility it could occur in January.
Monday, I wrote, “Bulls need a big day today and tomorrow, a surge above DJIA 16,588 (S&P 500: 1,848).I added, “For starters, the bears need a rally failure with a drop below DJIA 16,425 (S&P 500: 1,826) with continued selling throughout the week.
On Monday the DJIA and S&P 500 closed exactly at the prices I said the bears needed surpass to get something going on the downside (DJIA 16,425, S&P 500:1,826).
But the market rebounded yesterday. While the rebound was not dramatic, there were areas that were impressive, especially in my “Technical Analysis Alert List” below with Valeant (VRX) up $12.73. Netease (NTES) +$1.66, and Align Tech. (ALGN) +$1.46. Others reflect upbeat patterns. These stocks were selected on December 23 because they had attractive “technically attractive price patterns.
Even IBM (my “Timing Opportunity Stock” list) added $3.81, after a 14-day, 20-point rise with only our brief (3-day) pause in the interim
What’s my point, other than I feel good that most of my list has done well ?
There is bounce in this market which should not be there if the BIG money was bailing. These stocks indicate buyers are still interested enough to pay-up.
There are plenty of toys in their sand box, and they aren’t finished playing.
After a jump at the open, the market averages went into a sideways consolidation. To continue a positive thrust, the DJIA must cross 16,564 (S&P 500: 1,841). Support is DJIA 16,478 (S&P 500: 1,832).
Investor’s first read– a daily edge before the open
S&P 500: 1,837
Nasdaq Comp. 4,153
Russell 2000: 1,157
Wednesday, Jan. 8, 2014 9:13
DO NOT MISUNDERSTAND MY POSITION HERE. I am still bullish, I just have an eerie feeling about the fact that concerns for the economy, Europe, China, Congress, the Mid-East, and a Fed taper are no longer front and center, so how much of those negatives have already been discounted by 2013’s big gain ?
The market is going to get whacked, it is a question of when. I think it’s in Q1, and January is a good bet. Beyond that, it will be volatile with a number of great buying opportunities.
We had 11 corrections of 5% or more last year with two exceeding 15%.* While 5% corrections are unnerving, they are generally over in the matter of a week or two. It’s the ones that exceed 5% that are like a sharp poke in the gut.
The greater than 5% ones are news-driven or technical. News driven start with a catalyst, an incident that is going to hang around unresolved for a while.
The technical ones reflect a momentary lapse in buying. Like a morning fog, they arrive, then suddenly lift.
A modest technical correction can become a greater one, if the market is hit with bad news as it is about to turn upward. That’s when a 5 percenter becomes an 8-pecenter or worse.
One strategy for investors to employ under these conditions would be to buy a partial position in a stock they want to own, but feel it could be bought at a lower price after a market correction. If it goes higher, they are still making money. If it goes lower, they can average their cost.
Likewise, if an investor feels a position is vulnerable but believes it could still go higher, he can sell off part of the position. If it goes higher, sell the rest. If it goes lower, the higher sale averages out the shares sold at a lower price.
As simplistic as this strategy is, it is easy to overlook under pressure.
I AM GOING TO REPEAT THE FOLLOWING TO MAINTAIN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.
Best Six Months to own stocks:
Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better between November 1 and May 1 than between May 1 and November 1.
The Almanac’s “Best Six” goes back to 1950. The six months is a snapshot between November and May. Many major market advances often start before November, but the point made here is the period between fall and May is where the action is.
Is this going to be another “BEST six months to own stocks ?
The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*
With a 7.3% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).
THE DANGER: over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period. Seven of those started in January, two in December and four in February.
TIMING – OPPORTUNITY STOCKS
New addition planned: alert to stocks with emerging technical patterns with potential. In a prolonged downturn, I would alert readers to stocks with vulnerable patterns. All on the drawing board.
The following are based on technical analysis only and are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly.
Apple (AAPL: $540.27) Positive.
Resistance at $546 too much and AAPL continues to probe for a comfort level. Above the $530.- $533 area.
Facebook (FB:$57.91) Positive
Got stopped at its resistance level, but a good performance after its sharp rebound Monday. Support is $56.80
IBM (IBM:$189.81) Positive
Broke through resistance at $188 after four tries. Next hurdle is$192 – $194, though there appears to have been a seller at the close yesterday. Support $188.60
Pulte Homes (PHM: $19.53) Positive
No change: There is a lot of resistance in the $20 area. Can drop to $19.15 near-term.
First Solar (FSLR:$52.49) Negative
Thursday was a huge day for FSLR with a $2.80 up-move in a crap market. Could be in response to a Jan. 2, Seeking Alpha article by EquityFlux,, “Solar Outlook 2014,” with a lot of good things to say about FSLR. FSLR failed to hold a nice gain Friday and yesterday the Street got the reason why. Goldman Sachs downgraded it to a sell from a buy. A rally attempt yesterday failed most likely due to continued selling following the downgrade. Stock can drop to the $46 – $48 area, though there is some support at $51.50.
Nike (NKE:$77.49) Positive
Resistance at $79 was too formidable so NKE must probe for support strong enough to support another shot at breaking $79 en route to the low 80s.
Hewlett-Packard (HPQ:$28.18) Positive.
Buyers Friday, Monday and yesterday improved a weakening pattern.
Support is $28. Needs a break above $28.90.
Polaris Inds. (PII:$144.78) Positive
Needs a break above $147 to have a shot at $150+. Support is $144.
Amazon (AMZN: $398.03) Positive
As expected, AMZN rebounded to minor resistance at $398 yesterday, but volume was light. May range sideways between $394 and $404.
Pandora Media (P:$32.44) Positive. Up 15% this week.
Responding to positive “listener” data news for 2013 year. Support is now $30.70.
NEW ! NEW ! NEW ! – Technical analysis ALERT list
The following is a “Technical” alert list, stocks that have indicated an improved technical pattern. I will not follow up in detail like the stocks above. These are not buys or sells, but simply alerts that their technical pattern is improving. Normal intraday fluctuations can offer a lower price than that listed here. Positive patterns can be interrupted by corrections.
Warning: An improving technical pattern can be reversed instantly by negative commentary from the Street, broker downgrades, etc. These are “snapshots” at a given time. Good timing can target pinpoint lower prices in some cases. Most stocks are technically attractive because they sketched out a positive upbeat pattern. Some will be because they are showing signs of rebounding from a depressed condition. If after additional due diligence you decide to buy any of these stocks, always protect yourself with a stop cell in line with your tolerance for risk
Align Technologies (ALGN:$63.36) Listed here (12/23) at $57.03
Gentex (GNTX: $32.60) Listed here (12/23) at $32.64. Now correcting up-move ($29 – $34) three weeks ago Can drop to $31.35
Netease (NTES: $79.69) Listed here (12/23) at $74.51
Spirit Airlines (SAVE: $46.42) Listed here (12/23) at $46.06. SAVE has a history of volatility with 5 one-day reversals in the last three months, yet the stock moved higher. Support is $45.25
Valeant Pharm (VRX: $125.35)Listed here (12/23) Up 12.73 Tues. (11.3%)
Dycom (DY:27.83) Listed here (12/23) at $28.05
Cognex (CGNX: $37.53)Listed here (12/23) at $36.09. Correcting after 6-point run up, Support $35.60.
Salex Pharm. (SLXP: $89.26) Listed here (12/23) at $87.61
Natus Medical (BABY:$24.29) Listed here (12/24) at $22.80
Sierra Wireless (SWIR:$25.45) Listed (12/24) at $22.33
NOTE: I AM NEITHER LONG OR SHORT ANY OF THE ABOVE STOCKS
While the number of economic reports is light, there are several key ones. Also, the FOMC releases its minutes which may shed light on the timing of future tapers.
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”
Factory Orders (10:00) Dec index down 0.9 to 53.0.
ISM Non-Mfg. Ix. (10:00) Dec index down 0.9 to 53.0. New orders dropped to 49.4 from 56.4
International Trade (8:30) Projected: Nov. $39.9 billion
Fed’s Rosengren speaks (8:30)
Fed’s Williams speaks (2:10 p.m.)
ADP Employment (8:15) Projected: Dec.205,000 vs. 196,000 Nov.
FOMC minutes (2:00p.m.)
Consumer Credit (3:00p.m.) Projected: Nov. +$14.3 billion vs. +$18.2 billion Oct.
Jobless Claims (8:30) Projected:331,000 for week 1/2/14 vs. 339 for prior week
Fed’s George speaks (1:30p.m.)
Fed’s Kocherlakota speaks (8:00p.m.)
Employment Situation (8:30) Projected: Nonfarm payrolls Dec. 200,000 vs. 203,000 Nov. / Private payrolls189,000 vs. 196,000 Nov. and 214,999 Oct.
Wholesale Trade (10:00) Projected:
Fed’s Bullard speaks (1:05p.m.)
RECENT POSTS – 2013
Dec 13 DJIA15,739 “Best Six Months Ahead ? Not Without an Ugly Correction in
Dec 16 DJIA January 30 Taper ? If So, Fed Needs to Schedule a Press
Conference – a Tip off”
Dec 17 DJIA 15,755 Fed to Taper January 30 ? It Should, Here’s Why
Dec 19 DJIA 15,875 Taper Today=Sell Off Followed by a rally – No
Dec 23, DJIA 16,221 New Feature : “Technical “Alert” List.”
Dec 24 DJIA 16,294 Buyer Panic ? Or Seller Ambush ?
Dec 26 DJIA 16,357 Year End Opportunities
Dec 27 DJIA 16,479 January 2014 Profit-Taking Will Hit Certain Stocks
Dec 30 DJIA 16,478 Be Prepared to Take Advantage of 5% January Correction
Dec 31 DJIA16,504 Forecast: Get Ready for a Wild Ride !
Jan 2 DJIA 16,504 A Raging Bull, but Corrections Offer Opportunities
Jan 3 DJIA 16,441 More Downside in the Market ?
Jan 6 DJIA 16,469 Correction or New Up-Leg ?
Jan 7 DJIA 16,425 Market at Key Crossroad
* InvesTech Research, James Stack, Editor(www.investech.com – 406/862-7777). This is clearly one of the nation’s best. Get a sample issue and see for yourself.
“Investor’s first read – an edge before the open”
The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk. Brooks may buy or sell stocks referred to herein.